Professional Documents
Culture Documents
Pharmaceutical Supply Chains Require New Operational and Technology Models To Enable Collaboration and Efficiency
Pharmaceutical Supply Chains Require New Operational and Technology Models To Enable Collaboration and Efficiency
Executive Summary
The pharmaceuticals industry is facing an era of
transformation, from the supply chain to the distribution channel. Supply chains are stressed by
SKU proliferation, demand variability and lower
margins. Meanwhile, expiring patents and heightened competition from generics have curbed
the top-line potential of branded pharmaceutical
business units. And finally, pharmaceutical distribution channels must address the increased
use of online ordering and direct-to-customer
delivery processes.
All of these factors, coupled with looming
regulatory mandates, are compelling pharma
businesses to rethink their supply chains and IT
strategies and develop more collaborative models
that enable them to be more agile, flexible and
compliant.
In many ways, pharmaceutical operations and IT
have traditionally been self-contained within the
enterprise. When they reached out to external
stakeholders, such as suppliers, customers and
distributors, it was mainly for transactional
purposes. It is only recently that the industry
has begun to build collaborative networks that
connect partners across the value chain, as seen
in other industries. These networks will help the
industry better manage drug supplies in the
face of increasingly unpredictable demand, gain
better visibility into inventory across the value
chain and service diverse markets.
In this paper, we explore the business and IT
imperatives of trying to refocus supply chain
strategies along these lines. We also explain
how communication among stakeholders in the
pharmaceuticals value chain can become more
proactive, and we describe how cloud-enabled
platforms can provide a common platform to
connect and share data. Companies that follow
these guidelines can engender trust and align
incentives through greater transparency and
accountability.
cognizant reports
chains according to
market conditions,
organizations can
reduce product,
overhead and
inventory costs
while providing
better service for
customers.
Taking Action
Historically,
comfortable
returns from blockbuster
and branded drugs have
resulted in complacency
among
pharmaceuticals
firms in terms of instituting
supply chain improvement
measures or collaboration
with external stakeholders. Typically, pharmaceuticals enterprises have closely guarded sales
forecasts and manufacturing pipeline information. They have also tended to deploy
largely independent ERP systems that serve
Business trust among value chain stakeholders. This includes suppliers (especially
those deemed strategic and part of the
virtual supply chain), manufacturers, 3PLs,
retailers, etc. Trust is built over time by
aligning the incentives of each stakeholder,
leveraging risk-sharing approaches.
Scalable and secure IT platforms that
facilitate real-time or near real-time visibility
of data across the extended supply chain.
Most ERP systems in use today were designed
for a stand-alone enterprise. Managing collaborative networks that span various partners across
the value chain is next to impossible using such
systems. Therefore, we foresee a two-tier system
Inventory
258 days
2-4x
153 days
Obsolescence
(% of sales)
3.1%
Manufacturing
Lead Time
72 days
120-180 days
2.8%
6x
0.5%
120-180 days
25-40x
3-7 days
Pharmaceuticals
Medical Devices
Source: Building New Strength in the Healthcare Supply Chain, McKinsey & Co., January 2013.
Figure 1
cognizant reports
accountability by
providing a single
version of the truth.
The pharmaceuticals industry can achieve similar results if it similarly leverages distributor and
retailer data for sales and operations planning
(S&OP). However, this ideal state is a far cry from
the current practice, in which pharmaceuticals
companies mostly plan in silos to meet financial
targets. Common complaints across the pharmaceuticals supply chain include:
Collaborative Forecasting
Quick Take
Technology Enabler #1: Enveloping Core ERP with Cloud
While most stakeholders appreciate the benefits of demand-driven supply, a key impediment to
implementing this model is the lack of tools that can facilitate collaborative forecasting and planning
based on consensus. Although such tools and systems are common in other industries like FMCG and
retail, the pharmaceuticals industry has been slow to adopt them because of its skepticism of cloud solutions in particular and the security of shared data in general.
However, pioneers of software as a service (SaaS) and cloud infrastructure have
made significant progress in data encryption, and supply chain leaders should re-evaluate the merits of creating a cloud-based planning layer over their core ERP. A cloudbased planning layer can enable the sharing of S&OP data with key stakeholders: contract manufacturers, branded and generic business units, distributors and retailers.
This planning layer would enable collaborative and iterative simulation planning that
takes into consideration pertinent factors such as current demand, projected sales
scenarios and supply constraints like lead time and capacity.
Once a forecast and the corresponding supply planning version have been agreed
to by all concerned stakeholders (for example, the brand owner and its contract
manufacturers), the plan can be adopted by the respective ERP systems to dictate lower-level planning like MPS or MRP. Needless to say, this requires the evolution of new data models that can be easily rolled out to multiple sites within the
enterprise and also adopted by new suppliers and customers.
A cloud-based
planning layer can
enable the sharing
of S&OP data with
key stakeholders:
contract
manufacturers,
branded and
generic business
units, distributors
and retailers.
Leading pharmaceuticals manufacturers are already starting to realize that when they have close to
100 contract manufacturers in different regions, integrating these manufacturers into their core ERP
would take several years. They are looking to cloud offerings to provide almost instant connectivity and
the ability to maintain a complex and scalable network, regardless of the number of interfaces involved.
cognizant reports
still struggling to
instantiate this
model, especially
when it comes to
sharing forecasts
outside their
four walls.
Visibility
The global populations rapidly growing healthcare needs present a mission-critical purpose
for pharmaceutical manufacturers. Pharmaceuticals product manufacturing and replenishment
must be tightly managed to avoid stockouts,
because unlike stockouts in other industries, they
sometimes entail a life-or-death situation.
cognizant reports
Quick Take
Technology Enabler #2: Cloud-based Master Data for Tracking, Tracing
Managing collaborative networks through existing on-premise ERP systems is difficult. A growing
consensus agrees this is best done through an independent cloud-based supply chain collaboration
platform that allows each player in the supply chain to connect to the central
system regardless of its own IT infrastructure. The network approach followed by This approach is
the cloud platform enables customers to more quickly and cost-effectively build being embraced
scalable master data platforms (GTIN, UPC, e-pedigree, etc.) and transactional data
(commissioning events, repackaging, delivery, etc.). Costs are lower partly because by leading
of the decreased total cost of IT and partly because of the lower cost of integration pharmaceuticals
using standard data models, plug-ins/APIs, etc.
manufacturers
Independent cloud solutions for serialization and track-and-trace will also mitigate
challenges typically faced when implementing serialization initiatives, such as
long equipment lead times, a limited talent pool, uncertainty around how
data will be shared, whether the mandates timeline will change, change
management risks from an operational standpoint, and layering in new systems
and validating them. We see organizations migrating toward cloud-based service
providers to address their track-and-trace needs and build a single source of truth
for all aligned players.
to comply with
mandates around
serialization,
extend compliance
to partners
and leverage
efficiencies across
the extended
supply chain.
Areas where we see progress include hosting and data exchange management to
achieve track-and-trace reporting, event acquisition, storage and reporting, product authentication, and reporting and sharing requisite data with supply chain
partners. Such solutions are provided by mobile and cloud-based serialization products, service providers and systems integrators that are able to host collected data on- or off-premise and then share
required data with partners and regulatory agencies.
Many of these providers are now even offering serialization solutions such as SaaS hosted on the
cloud. This approach is being embraced by leading pharmaceuticals manufacturers to not only comply with mandates around serialization, but to also extend compliance to contract manufacturing
partners and truly leverage efficiencies across the extended supply chain.
cognizant reports
4-8
3-4
~2
Finished Goods
Manufacturing
Frequency (weeks)
8-52
4-12
Low volume,
high volatility
4-8
Low volume,
low volatility
High volume,
high volatility
2-4
High volume,
low volatility
Source: Building New Strength in the Healthcare Supply Chain, McKinsey & Co., January 2013.
Figure 2
cognizant reports
Quick Take
Technology Enabler #3: ERP, Advanced Network Planning System
Integration
Best-in-class pharmaceutical companies are instituting a new supply chain operating model that enables
segmentation across the network. As a result, these companies now have a synchronized regional, site
and network supply chain. This gives them a shared view of the plan across the network and a way
to enable waste reduction, risk mitigation, effective lifecycle management, jurisdictional control and
scalability as business complexity continues to grow.
To be effective, these networks will require an exchange of data that goes far beyond the traditional
sharing of tactical data. Further, data will need to be available on-demand, in near real-time. The
comparative ease with which cloud-based collaboration systems are implemented means that data held
in systems outside of ERP (CAPA, MES or LIMS, for example) can be shared on the same cloud platform.
Such data sharing enables effective monitoring of manufacturing processes and can provide early
warnings of problems in internal and external operations.
Looking Ahead
The pharmaceuticals supply chain has been
challenged to reduce costs to counter dramatic
changes in the business environment. To
succeed, pharmaceuticals companies that have
traditionally focused inwardly must re-define
the boundaries of their enterprise. Suppliers
typically regarded as outside the four walls,
including CMOs, 3PLs and retailers, will become
partners in a virtual supply chain and function
more as captive suppliers. In some cases, they will
function as an extension of the company itself and
not be viewed as mere transactional partners.
We recommend three short- to medium-term
initiatives to improve supply chain performance
through enhanced collaboration:
Footnotes
1
S&P CapitalIQ
Phil Berk, Marc Gilbert, Marc Herlant and Gideon Walter, Rethinking the Pharma Supply Chain,
BCG Perspectives, The Boston Consulting Group, May 13, 2013, https://www.bcgperspectives.com/
content/articles/biopharma_supply_chain_management_rethinking_pharma_supply_chain_new_
models_new_era/.
cognizant reports
Thomas Ebel, Erik Larsen and Ketan Shah, Building New Strengths in the Healthcare Supply Chain,
McKinsey & Co., January 2013, http://www.mckinsey.com/insights/health_systems_and_services/
strengthening_health_cares_supply_chain_a_five_step_plan.
Acknowledgments
The authors would like to acknowledge the contributions of Eric Laager, Senior Consultant in
Cognizant Business Consultings Life Sciences Practice, and Anirban Ghosh, Senior Consultant in
Cognizant Business Consultings Life Sciences, to this white paper.
Credits
Authors
Ramana Reddy, AVP, Cognizant Business Consulting, Life Sciences Practice
Sandeep Gidwani, Director, Cognizant Business Consulting, Life Sciences Practice
Sanjay Fuloria, PhD, Senior Researcher, Cognizant Research Center
Analyst
Yuvaraj Velusamy, Researcher, Cognizant Research Center
Design
Harleen Bhatia, Design Team Lead
Meenakshisundaram Thambusamy, Designer
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process
outsourcing services, dedicated to helping the worlds leading companies build stronger businesses. Headquartered
in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep
industry and business process expertise, and a global, collaborative workforce that embodies the future of work.
With over 50 delivery centers worldwide and approximately 164,300 employees as of June 30, 2013, Cognizant is a
member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500, and is ranked among the
top performing and fastest growing companies in the world.
Visit us online at www.cognizant.com for more information.
World Headquarters
European Headquarters
1 Kingdom Street
Paddington Central
London W2 6BD
Phone: +44 (0) 207 297 7600
Fax: +44 (0) 207 121 0102
Email: infouk@cognizant.com
Copyright 2013, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is
subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.